13
THE CHICAGO BANKER
October 3, 1908}
William A. Tilden President
Nelson N. Lampert Vice Prest.
Henry R. Kent Cashier
Charles Fernald Asst. Cashier
Colin S. Campbell Asst. Cashier
MONROE ANO CLARK STREETS
CHICAGO
Capital, SI,000,000	Surplus and Profits, $400,000
Your Business Solicited
THE
LIBERTY NATIONAL BANK
OF !NEW YORK
FREDERICK B. SCHENCK, President
CHARLES W. RIECKS
2d Vice-president and Cashier
HENRY S. BARTOW
Asst Cashier
HENRY P. DAVISON, Chairman Executive Committee
CAPITAL, SURPLUS AND UNDIVIDED PROFITS
S 3,400,000.00
tive and are by no means a success, as the proposed amendments testify.
Perhaps the most radical of the proposed measures which we will discuss is giving to national banks trust company privileges.
Trust Companies Essentially State Institutions
The character of the business primarily done by trust companies is of such a nature that state courts must have immediate and complete jurisdiction over them, and all laws and judicial decisions bearing upon trust interests are most jealous of these rights and of this jurisdiction, and it is proper that this should be so. A due regard and care for these trust interests make it necessary that trust companies should be state institutions, that are directly amenable to the laws of the states in which they are chartered and operate, and under which the various trusts exist.
These state laws are made to deal with executors, administrators, trustees, assignees, and agents, that are the servants of the court, and with estates and trusts that must of necessity vary greatly in character in different states, which represent rural, manufacturing, and mining, or other interests, and different stages of civic development and thought; while the vast number and complicated character of the laws and decisions affecting the inheritance of property are more or less peculiar to each commonwealth.
This trust company section has tried to harmonize a few of the most essential and simplest of the various laws affecting trust companies and knows something of the difficulties that are in the way of any serious changes in this direction. Trust companies should certainly remain peculiarly state institutions.
National banks doing a strictly commercial banking business are solely under federal authority and control, and naturally further removed from these peculiar local conditions and this state control, and one would think that thev would be the last to want to take up this line of business, and the least circumstanced to do so.
National Banks and Trust Company Privileges
The delegation of trust company privileges to national banks would scarcely "be considered seriously in the face of these facts and the many differing and exclusive state laws affecting trust affairs, if it were not that it appears as a part of Mr. Fowler’s bill, the scope and character of which has commended it as the most scientific (Continued on page 38)
It does not Protect in Time of Panic
It is claimed that a guaranty fund would protect depositors in time of panic. No matter what the fund amounted to, it could not be effective in time of panic, such as that through which we have just passed, unless this fund was available for immediate use, which would mean a vast amount of actual currency hoarded in the vaults of the United States Treasury and different state treasuries for that purpose at all times. It is folly to consider such a guaranty fund available for immediate payment of depositors at any and all times. The recent Comptroller's report shows that there were in 1907 as many as 19,745 national, state, and private banks, with aggregate deposits of $13,099,600,000. If 5 per cent of this amount, which is the figure named in Mr. Fowler's bill for a guaranty fund, be set aside, it would equal a fund of $654,980,000. This approximates 20 per cent of the total banking capital of the country. It exceeds in amount 231/2 per cent of all the currency in circulation in the United States, and it is more than $7.50 per capita of our entire population. The withdrawal of this sum, or any material part of it, from the channels of trade would work serious detriment to our commercial interests and entail great loss upon the banks of the country. To avoid this loss and inconvenience, this fund would of necessity have to be invested, and if invested, it would be no more available than the current negotiable assets of the bank. It would then become a fund available at some future time, and neither the knowledge of a guaranty fund nor the fact that ample security is available at some future time will prevent a panic, as those can testify who have reason to know that currency, and only-currency, will answer while the scare is on, and in the panic of 1893 gold, or gold certificates alone seemed to have the power to satisfy; an invested guaranty fund will not prevent a panic, for panics arise from other causes, and panics will continue to come so long as credits are as easily expanded and as suddenly contracted as they have been and are still, in this high, strong, and rapidly developing country of ours.
In addition to all this, history has alreadv proved the futility- of the scheme. The “Safety Fund System” in the state of New York worked well in normal times, but notwithstanding the complete and efficient machinery- under which it operated it failed completely in the trving years of 1837 to 1842; the Oklahoma laws so often referred to have practically just become opera-
need not deposit if he chooses not to do so, in fact, he deposits where he pleases, or changes his deposit as he likes without restraint or compulsion, while the bank under the proposed measure would be taxed for a guaranty fund whether it wills it or not, and that too not for the benefit of its own customers or depositors, but for those of another and perhaps far distant bank over which it has absolutely no control, and of which it has perhaps no knowledge, except that its management has been faulty and its end premature.
It is Unfair and Unjust
The injustice and unfairness of this measure becomes most apparent when it is known that it absolutely ignores the rights and interests of all state institutions, and seeks to impose a burden upon the better and stronger national banks that will redound to the direct benefit of the poorer and weaker ones without any compensation whatsoever. The apparent security offered by the government guaranty would make the weakest and poorest "guaranteed bank׳’ equal in the eyes of the average depositor, to the largest and best managed institution in the land. The good name and accumulated surplus of a bank, are assets that have cost much time and effort to get, and a law that would impair or fail to protect them would impose hardship and work irreparable loss. So valuable are these assets that no bank could afford to lose them, and no court of justice would fail to recognize their value, should the constitutionality of such a law ever be tested.
The influence of such a measure would be detrimental to the banks, the bankers, and the people, under such a law the bank itself would have no special inducement to accumulate a large capital and surplus or build up a name for conservative management, on the contrary, the interest of the stockholders would be best served by the prompt distribution of its earnings, and a reduction of its capital to the least amount that it could successfully operate with, while profits, and not safety and reputation, would be its main concern. The consciousness of having deposits guaranteed, would give to the speculatively inclined banker just the assurance that would lead him to take undue risks for the sake of extra profit, and to the lazy and slothful it would give confidence that would cause him to become less vigilant and careful, while to the people it would give a narcotic that would render them less watchful and more indifferent to true merit and trustworthiness.